Housing is Affordable in the Hoosier State

With all the new home construction occurring in the Indianapolis
area, one might wonder about the costs associated with homeownership. New
American Community Survey (ACS) data released by the U.S. Census Bureau sheds
light on this subject. (1)

In 2004, 40 percent of Indiana’s occupied housing
units with a mortgage paid 15 to 24.9 percent of their household income towards
monthly homeownership costs.(2) Most experts feel a good rule of
thumb is that no more than 30 percent of your income should go towards housing-related
expenses; (3) many experts are even more conservative than that,
claiming if a down payment of 10 percent is made, no more than 28 percent
of household income should be used to pay the mortgage, property taxes and
insurance. Indiana homeowners appear to have less difficulty in adhering
to this principle than the rest of the nation, where 18 percent of mortgaged
owners are paying out at least 40 percent of their household income to housing
related expenses relative to Indiana’s 13 percent (see Table
1).

Table 1: Owner Costs as a Percent of Household Income,
2004

Indiana had 24.4 percent of its mortgaged owners spending
30 percent or more of their household income on selected monthly owner costs,
ranking 44th and tying with Missouri.

In comparison, California (ranked first) and Nevada (ranked
second) had 44.1 and 38.6 percent of its mortgaged owners paying out 30 percent
or more of their household income towards homeownership-related expenses
(see Figure 1). Of course, many parts of California and
Nevada are experiencing what the media terms a “housing bubble”
where their home appreciation rates may take care of the extra
cost associated with homeownership. Figure 2 shows Nevada
(ranked first) and California’s (ranked fourth) one-year home appreciation
rates. Nevada’s housing stock increased in value by 28 percent and
California’s increased by 25 percent, whereas Indiana had a 4.7 percent
net increase—a full 8.7 percentage points below the nation. California,
District of Columbia and Rhode Island home prices doubled over the five-year
period. Longevity seems to be the key in the Indiana housing market where
Indiana’s five-year appreciation rates were last in the nation but
its 25-year rates earned the state a rank of 39.

Figure 2: Percent Change in House Prices Through 2005:2

Similarly, renting is an affordable option in Indiana (ranked
44th) where only 37.8 percent of renting households spend 30 percent or more
on rent and utilities.

In Indiana, four counties (Allen, Lake, Marion and St.
Joseph) were sampled by the ACS to produce estimates. However, more counties
were used to derive the state numbers. (4) Figure 1 shows
the four counties and their peers across the nation in the percent of mortgaged
owners spending 30 percent or more of their income on homeowner expenses,
along with the state data. (5) Only seven states are more affordable.
Meanwhile, 50 percent of renters in Florida and California spent 30 percent
or more of their household income on rent and utilities each month.

The median monthly owner cost for those with a mortgage
in Indiana was $963, an $11 increase from 2003. Indiana ranked 36th on this
measure, and Hoosiers paid $884 dollars less than New Jersey residents, who
had the highest monthly owner costs. Meanwhile, Hoosiers paid $194 more than
West Virginians who ranked 51st.

Out of 236 counties or county equivalents across the nation,
Lake ($1,034), Marion ($1,016), St. Joseph ($912) and Allen ($896) counties
were ranked 196th, 199th, 227th and 231st, respectively for median monthly
owner cost for those with a mortgage. Figure 3 shows the
counties that are within 1 percent of the Indiana counties’
values. Comparatively, San Francisco had the highest median monthly
housing cost ($2,472).

A typical Indiana resident paid $589 per month last year
for rent and utilities, (6) $105 less than the U.S. average. In
comparison, California renters paid $914 per month, which was only $49 less
than what the typical Hoosier homeowner would pay in mortgage and other related
costs.

In 2004, 71.8 percent of occupied housing units were owner-occupied,
ranking the Hoosier state 12th in the nation. That is a 5.9 percentage point
increase since Census 2000. Hawaii, California, New York and District of
Columbia had the smallest percentage of owner-occupied housing. Of Indiana’s
owner-occupied housing units, the median home value was $110,020, which was
72.7 percent of the U.S. value. Table 2 shows the median
home values of Indiana’s neighboring states, along with Midwestern
peer counties (within 1 percent of the Indiana counties’ 2003 per capita
income).

Table 2: Indiana's Neighboring States Median Home
Value, 2004

The old saying, “just because you can afford it doesn’t
mean you should buy it,” probably applies here too. Hoosiers need to
make sure they have all of their finances and debt in line before taking
on one of life’s biggest debts.

Notes

In 2010, the ACS is scheduled to replace the long-form census questionnaire
that was administered to one in six addresses in Census 2000.

Selected monthly owner costs are the sum of payments for mortgages,
deeds of trust, contracts to purchase or similar debts on the property
(including payments for the first mortgage, second mortgages, home equity
loans and other junior mortgages); real estate taxes; fire, hazard and
flood insurance on the property; utilities (electricity, gas, water and
sewer); and fuels (oil, coal, kerosene, wood, etc.). It also includes,
where appropriate, the monthly condominium fee for condominiums and mobile
home costs (installment loan payments, personal property taxes, site rent,
registration fees and license fees).

The Department of Housing and Urban Development (HUD) has determined
that no more than 30 percent of income should go toward housing costs.

Peers were determined by being plus or minus 0.5 percentage points
from the Indiana value.

The data for monthly housing costs are developed from a distribution
of selected monthly owner costs for owner-occupied units and gross rent
for renter-occupied units. Gross rent includes aggregates of payments for
contract rent and the cost of utilities and fuels.

Amber Kostelac, Data Manager

Indiana Business Research Center, Kelley School of Business,
Indiana University